South Africa’s motor vehicle industry is going from strength to strength, especially regarding its significant contribution to foreign exchange earnings.
Following a period of relatively high prices for most of the country’s export commodities, the contribution to export earnings by the mining sector has been under pressure since the beginning of the year, mainly because of a marked slowdown of the Chinese economy and lethargic growth in Europe and other advanced economies.
Fortunately, South Africa’s motor vehicle and component manufacturers have come to the party in a big way, increasing their contribution to total exports during the first nine months of the year from 9.3% in 2022 to 11.7% in 2023.
In the process, the value of motor vehicle & component exports of R178 billion for the first three quarters of 2023 has elevated the industry into third place in the rankings for export earnings. To date this year, only precious metals and mineral products have earned more foreign exchange than the motor industry.
The sterling performance of vehicle exports is especially significant against the background of the highest interest rates in 14 years, which have served to stifle the demand for many durable consumption items, including new vehicles. Despite a year-on-year drop of 3.4% in the sales numbers of new passenger vehicles during the ten months to October, passenger vehicle exports increased by 8.8%, whilst light commercial vehicle exports increased by a whopping 21%.
A recent report by the Automotive Business Council (Naamsa) highlighted the strategic importance of the motor vehicle industry to the South African economy. The broader industry, which includes services, contributed almost 5% to South Africa’s GDP in 2022, whilst vehicle and component production represented 21.7% of the country’s total manufacturing output.
Last year, capital expenditure by the sector amounted to R11.6 billion and South Africa’s contribution to the African continent’s total vehicle production amounted to more than 54%. Rather predictably, Naamsa is keen to see a lengthy extension of the Africa Growth & Opportunity Act (Agoa), as the US is currently the fifth largest destination for South African vehicle exports.
*Source: Naamsa/Lightstone Auto
Together with other preferential trade agreements with European countries, Agoa has played its part in securing economies of scale for South African vehicle manufacturers. The economic significance of this industry is reflected in the fact that vehicles are being exported to 152 different countries.
Furthermore, local consumers are spoilt for choice, with South Africa being the top-ranked country in the world for the ratio between passenger car models and vehicle market size. Last year, prospective car owners could choose between more than 2,500 models from 43 passenger car brands.
The message to government should be clear, namely not to jeopardise the country’s eligibility for continued participation in Agoa.